Output growth signals rate rise

INTEREST rates could be on the rise as early as next month after official figures today showed a strong bounce back in the manufacturing sector. April data showed the growth of manufacturers' output at its fastest rate for eight months, leading the influential National Institute of Economic and Social Research think-tank to forecast a rebound in Britain's overall economic growth.

With GDP stagnant at zero growth for the last three months of 2001 and the first quarter of this year, Britain ranks as the weakest performer in the G7 countries. But the NIESR estimated that in the three months to April, GDP growth was 0.4%, picking up to 0.6% in the three months to May.

April's figure was upgraded from the previous 0.2% estimate in the light of today's industrial data from National Statistics. This showed manufacturing output expanded 0.8% in April after slumping 0.5% the previous month. Overall industrial production, taking in energy and mining, rose 1.1%, its biggest monthly gain since July 1999.

NIESR economist Martin Weale said: 'The data obviously make an interest rate increase more likely. We expect the first rise to come in July or August.'

April's ONS figures chimed with optimistic surveys. Hard- hit manufacturers make up only about a fifth of the economy but the monetary policy committee wants to see clear signs of their recovery before raising rates. Further improvement is in the pipeline due to sterling weakening against the euro.